The Electricity Company of Ghana has explained that the cost of liquid fuel it purchases to generate electricity hinder its allocations to tier two beneficiaries under the Cash Waterfall Mechanism.
According to the power supply company, this situation has arisen because the Ministry of Finance, which has the responsibility to purchase fuel entered into an agreement with them to purchase and request for reimbursement later.
“Under normal circumstance, liquid fuel should have been purchased by MoF. However, ECG reached an understanding with MoF to purchase liquid fuel during emergency to be reimbursed later. The total liquid fuel purchased by ECG since August 2023 is US$20.4million or (GHc236.7million). There is no revenue allocation for purchase of liquid fuel under CWM, hence the purchase of liquid fuel affects the actual CWM allocations to tier 2 beneficiaries,” the Managing Director of the ECG, Mr Samuel Dubik Mahama wrote in a letter dated March 27 sighted by 3news.com.
The letter is in response to an order by the Public Utilities Regulatory Commission (PURC) dated March 18.
It would be recalled that the PURC asked the ECG to pay all tariff revenues as prescribed and allocated under the Cash Waterfall Mechanism (CWM) to secure the financial integrity of the sector.
Mr Mahama stated that in view of the inability of the Ministry of Finance to purchase liquid fuel, they raised the issue for discussion and a way forward was agreed.
“At a recent meeting at Jubilee House, it was agreed that ECG should collect and declare GHS1billion per month for both Tier 1 and 2 in addition to making available GHS300million for the purchase of liquid fuel,” he informed the PURC.
The ECG MD further wrote, “Some challenges with the implementation of the CWM were tabled by ECG and accepted by the CWM Implementation Committee on 26th March 2024. Consequently, ECG is complying fully with the CWM approved model going forward.”
The ECG MD detailed some of the issues they raised to the Implementation Committee Members as follows:
a) Treatment of Early Power as Tier 1 Beneficiary
The inclusion of Early Power in Tier 1 Payments is based on the fact that ECG has a Take or Pay PPA with Early Power. In addition, Early Power generated GWh77.7 of electricity valued at USS5million for December 2023 and January 2024 which bill is due for payment hence demand notice served on ECG to that effect. The position of ECG is that, as has been done for all other IPPs, the same treatment should be accorded Early Power to avoid accumulation of debt.
b) Treatment of WAPCo
The inclusion of WAPCo in Tier 1 Payments is based on two directives issued by the Minister of Energy. First, WAPCo should be included in Tier 1 Payments Second. Payments to WAPCo should be made in US Dollars and directly to WAPCo. The account details of WAPCo which is now with ECG is a US Dollar Account.
c) Loan Repayment for Bui Power Authority and Ghana National Gas Company Limited
To recall, loans were contracted by Bui Power Authority and Ghana National Gas Company Limited to address pressing financial challenges both companies were facing. By an agreement between ECG and the two Institutions, these loans were novated to ECG for payment of both Principal and Interest as and when due. The total amount contracted by the two Institutions is GHS250 million (Bui Power Authority GHS150million and Ghana Gas Ghana Limited GHS100million respectively). “
Mr Mahama further explained that, “In executing the terms of the loan agreement, ECG has since been making payments as and when due, which fact can be verified from the beneficiaries. It is therefore prudent to address the issue of the repayment of the loan as part of the CWM payments so as to avoid placing ECG in a precarious financial position, failure to address these issues is very much likely to result in accumulation of debt, since ECG has no other source of revenue generation to pay both the principal and the interest.”
